I seem to have set up the emulated hard drive to be too small - all that's in there right now is my System Folder, but there's only 16MB available. Is there a way to change that, or do I have to start from scratch?

Start from scratch; it's easy, as you just create a 100MB HD (or 2GB if you really want to) and then mount them both, format the new drive, and drag everything from the old one to the new one. Then remove the old one from the mount list and toss the image file. Next time you start SheepShaver, you'll be booting from the larger drive.